Measures to protect the corporate tax base

Budget Review 2013–14 Index

Bernard Pulle and Jamie Roberts

Introduction

This brief gives an overview of the following six measures proposed in the 2013–14 Budget which are directed at protecting the corporate tax base from erosion and closing loopholes in the taxation law:

  • addressing aggressive tax structures that seek to shift profits by artificially loading debt into Australia[1]
  • closing loopholes in the consolidation regime
  • closing loopholes in the Offshore Banking Unit regime
  • improving the integrity of our foreign resident capital gains tax regime
  • increasing ATO compliance checks on offshore marketing hubs and business restructures and
  • targeting the deduction for exploration to genuine exploration activity.

A seventh measure which is also directed at protecting the corporate tax base and closing loopholes deals specifically with ‘preventing dividend washing’.[2] This is the subject of a separate brief in this Budget Review.

In summary, the six measures referred to above are projected to bring in additional revenue of $4,136.5 million over the forward estimates ($108.4m in 2013–14, $875.3m in 2014–15, $1, 479.2m in 2015–16 and $1, 673.6m in 2016–17).[3] Further details about these six measures, along with the reasons why they are necessary and how the Government proposes to consult on them, were outlined by the Assistant Treasurer in a Budget-day media release.[4]

Trends in company tax receipts as a percentage of GDP

Annual company tax receipts in 2011‑12 were the highest on record, surpassing the pre-global financial crisis (GFC) collection figures for the first time (see table 1 below). This increase resulted in a commensurate increase in company tax as a proportion of GDP (representing 4.56 per cent of GDP in 2011‑12), which is similar to what was achieved in 2008–09 when the GFC began.

However, actual collections in 2011‑12 were significantly lower than what was estimated in the 2011–12 MYEFO ($70, 000m) and in the 2012–13 Budget ($67, 460m)[5] – these amounts already reflecting significant and successive downward revisions in tax receipts.

As these six budget measures are designed to strengthen the domestic corporate tax base and protect revenue leakage, they are helpful in underwriting the expected increase in company tax receipts over the forward estimates, and the path back to surplus. This estimated increase should also result in a steady improvement in company tax as a proportion of GDP.

Disclosures in the Budget Speech and media releases

The Treasurer in his 2013–14 Budget speech stated that the Australian Government will be ‘closing loopholes and protecting the corporate tax base to ensure multinationals and big businesses are not being given an unfair advantage’.[6] Ever since the GFC, governments in the developed world have been examining ways and means of ensuring that multinational enterprises pay a fair share of tax in each of the jurisdictions in which they operate.

The Treasurer and the Assistant Treasurer, in a joint media release on Budget day, also pointed out that the aggressive tax practices of some multinational and other large companies are an increasing focus of many G20 countries.[7] The Commissioner of Taxation (the Commissioner) identified a range of aggressive tax minimisation strategies which are currently being employed to take advantage of design flaws, vulnerabilities and unexpected interactions in Australia's corporate tax laws.

In a 10 May 2013 media release, the Commissioner acknowledged that he, along with his counterparts in the United States and the United Kingdom, had substantial sources of data that were evidence of the widespread use of complex offshore structures by wealthy individuals and companies to conceal assets.[8] This data is said to reveal that Singapore, the British Virgin Islands, the Cayman Islands and the Cook Islands are among the jurisdictions in which these offshore structures are set up.[9]

Concluding comments

In May 2013, the Treasury released an issues paper entitled Implications of the Modern Global Economy for the Taxation of Multinational Enterprises.[10] Among other matters, this paper sought to critique the quality and availability of evidence of base erosion and profit shifting (BEPS) in Australia, and to consider what additional data might be needed to reach definitive conclusions on the extent and nature of the problem.

It may therefore be inferred that these budget measures are preliminary initiatives to deal with certain aspects of BEPS in Australia, and that it might be necessary to deal with other aspects of BEPS based on unfolding evidence. A Treasury Scoping Paper is expected to be released in late June 2013 after submissions on the Issues Paper have been duly considered.

Table 1: Percentage of corporate tax receipts to gross domestic product (GDP)

Company tax receipts (cash)

Alternative measures of GDP

Average GDP (a)

Company tax, % of average GDP

Chain volume GDP & related measures

Real income measures

Current price measures

 

 $m

$m

$m

$m

$m

 

2003–04

 36 101

1 153 355

1 038 459

 859 635

1 017 150

3.55%

2004–05

 40 404

1 190 111

1 089 044

 920 969

1 066 708

3.79%

2005–06

 48 960

1 226 323

1 143 973

 994 968

1 121 755

4.36%

2006–07

 57 100

1 272 776

1 204 271

1 083 303

1 186 783

4.81%

2007–08

 61 700

1 320 746

1 263 465

1 175 321

1 253 177

4.92%

2008–09

 60 391

1 342 514

1 303 785

1 254 293

1 300 197

4.64%

2009–10

 52 209

1 370 540

1 318 604

1 292 315

1 327 153

3.93%

2010–11

 56 262

1 403 888

1 403 888

1 403 888

1 403 888

4.01%

2011–12

 66 584

1 451 120

1 453 150

1 473 227

1 459 166

4.56%

(a)   The average of the three alternative measures of GDP provided

Sources: Statement 5: Revenue, Budget paper no. 1: 2012–13, Table C1; Statement 5: Revenue, Budget paper no. 1: 2013–14, Table C1; Australian Bureau of Statistics (ABS), Australian system of national accounts 2011–12, cat. no. 5204.0, ABS, Canberra, 2012, p. 24.


[1].       The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013–14, p. 33–37, accessed 18 May 2013.

[2].       Ibid., p. 36.

[3].       Ibid., pp. 33–37.

[4].       D Bradbury (Assistant Treasurer and Minister Assisting for Deregulation), Protecting the corporate tax base from erosion and loopholes – measures and consultation arrangements, media release, 14 May 2013, accessed 18 May 2013.

[5].       Australian Government, Budget strategy and outlook: budget paper no. 1: 2012–13, accessed 22 May 2013.

[6].       W Swan (Deputy Prime Minister and Treasurer), Budget speech 2013–14, accessed 18 May 2013.

[7].       W Swan ( Deputy Prime Minister and Treasurer) and D Bradbury (Assistant Treasurer and Minister Assisting for Deregulation), Protecting the corporate tax base from erosion and loopholes, joint media release, 14 May 2013, accessed 18 May 2013.

[8].       Australian Taxation Office, No safe havens, media release, 10 May 2013, accessed 19 May 2013.

[9].       Ibid.

[10].      Australian Government, Implications of the modern global economy for the taxation of multinational enterprises, the Treasury, Issues paper, May 2013, accessed 18 May 2013.

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